CS-USFDA

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25 June 2014

Asia Pacific/India

Equity Research

Specialty Pharmaceuticals (Healthcare IN (Asia))

India Pharma Sector THEME

Pharma reflection #4: What's your FDA score?

Figure 1: 30% of sector profit comes from single facilities supplying to the US

0%

5%

10%

15%

20%

25%

30%

35%

40%

Cadila Glenmark Lupin Torrent DRL Sun IPCA Cipla

FY14A FY17E

High contribution of largest plant = high FDA risk

Largest US facility as % of consol profits

Source: Company data, Credit Suisse estimates

All large-caps are due for a US FDA inspection in the next six months at their

largest facility. Large-caps have been reducing plant concentration risk but the

exposure is high at 30% of profits. FDA risk at mid-caps is under-appreciated,

with 80-100% of US sales contributed by a single facility.

■ Diversification into complex generics is reducing plant concentration

risk. Large-caps now supply to the US through 4-5 plants vs. 2-3 about

three years ago. The diversification was driven by (1) shifting oral solids

from the largest plant, and (2) supply of new forms (injectables, ophthalmic,

oral contraceptives, etc.) from a new facility. Among large-caps, Cadila has

the highest exposure to its largest plant at 38% of profits while Cipla has the

lowest at 6%. We expect FDA risk to reduce the most for Cadila and Sun

over the next three years as (1) Cadila launches transdermals from new

facility, and (2) the Ranbaxy integration and a speciality acquisition reduce

exposure for Sun.

■ US FDA risk under-appreciated for mid-caps. Mid-caps have re-rated

recently with the expectation of strong growth from the US. However, the

FDA risk is under-appreciated, with 80-100% of US sales contributed by a

single facility. The risk should not reduce over the next few years as mid-caps

are yet to build scale and only a few firms are diversified to different forms.

■ Prefer Sun, Lupin and Cadila. We are positive on US generics' upside but

prefer large-caps over mid-caps: (1) FDA risk is lower in large-caps, and (2) we

prefer stocks with high exposure to complex generics (refer to Entering the

Major League in the US). Sun and Lupin remain our top picks with the strongest

US pipeline and Cadila is expected to be the fastest growing in our coverage.

Research Analysts

Anubhav Aggarwal

91 22 6777 3808

[email protected]

Chunky Shah

91 22 6777 3872

[email protected]

https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x543962&serialid=ZaixSdnJaQeuPdSqIGpD2COB6rgyF8gYXQXMtNQy2q0%3d


25 June 2014

India Pharma Sector 2

Focus table and charts Figure 2: Exposure of the largest facility supplying to the US to consolidated profits

Company Key facility Contribution of largest

facility to EPS

How exposure to the largest facility being reduced?

FY14 FY17

Cadila Moraiya,

Ahmedabad

38% 26% Reducing exposure to Moraiya through (1) shifting orals from Moraiya to Baddi, (2) new orals and

transdermal filings from SEZ, and (3) a new facility for topical filings

Glenmark Goa 30% 27% Reducing exposure to Goa through (1) transfer of derma products to Baddi, (2) new filings of oral solids from the Indore SEZ, and (3) oncology injectable filings from Argentina

Lupin Goa 30% 25% Goa is only an oral solid plant and as proportion of oral contraceptives, ophthalmic, injectables and

derma increases for Lupin, contribution of Goa facility should reduce

Torrent Indrad, Gujarat 25% 23% Dahej Phase I work is on and should get the US FDA approval in a couple of years

DRL Bachupally,

Hyderabad

25% 20% Reducing exposure to Bachupally through (1) transfer of some oral products to other facilities, (2) new

filings of oral solids from Vizag SEZ or Srikakulam SEZ, (3) increasing contribution from injectables

Sun Halol, Gujarat 25% 19% Sun's exposure to Halol should reduce due to the Ranbaxy integration (brings in more non-US

revenues) and a possible speciality acquisition in the developed markets

IPCA Indore SEZ 8% 9% Silvassa is a key facility currently but is fully utilised and incremental launches are from the Indore SEZ.

Indore will remain a key facility for IPCA for the next few years where IPCA is doubling its capacity

Cipla Goa 6% 8% Overall contribution of US is low at 7% of sales. The Indore SEZ was approved in FY13 and

therefore, increasingly, sales should diversify for Cipla


Figure 3: Mid-caps re-rating driven by scale-up in the US Figure 4: Single facility risk is higher at mid-caps

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14

Midcap PE discount to large cap pharma

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

% US sales from largest facility

Mid Caps Large Caps

Large-caps = Sun, Lupin, DRL, Cipla, Cadila and Glenmark; Mid cap=

Torrent, IPCA, Strides, Alembic, Ajanta and Indoco; Source: IBES


Figure 5: Mid-caps have 1-2 plants vs. 4-5 at large-caps Figure 6: Lupin & Cipla better placed on FDA inspections

0

1

2

3

4

5

6

7

8

9

10

Number of facilities supplying to US

Mid Caps Large Caps

0%

10%

20%

30%

40%

50%

60%

70%

Lupin Cipla DRL IPCA Torrent Cadila Glenmark Sun

In last 5 formulation inspections In all formulation inspections

% of "NO 483 inspections"

Source: Company data, Credit Suisse estimates Source: FDAzilla, Company data, Credit Suisse estimates

25 June 2014


What’s your FDA score? Profit loss or growth loss are the key risks from an adverse FDA inspection which

investors cannot hedge against but can only attempt to reduce. We attempt to quantify the

exposure of pharma companies to their largest facility supplying to the US. We note that

most of the large-caps have never received warning letters on their key facilities (except

Cadila receiving a warning letter on its Moraiya facility) but with the FDA becoming more

stringent, that risk cannot be ruled out. We present a detailed analysis of facility wise

capabilities, how firms are diversifying their exposures to new facilities and the inspection

history.

Plant concentration risk reducing for large-caps

About 50-75% of a large cap's US sales come from their largest facility. The reason large-

caps are highly exposed to a single facility is the high gestation period for a facility

supplying to the US. Typically, it takes two years to construct the facility and file ANDAs

from the facility which triggers an FDA inspection. ANDA approval takes on an average

three years. Therefore, a new facility for the US, does not get its first stream of revenue for

the first five years and then takes another 3-5 years for the pay-back period. Most of the

large-caps began operations in the US in early 2000s and therefore started diversifying

into alternate sites only in late 2000s, especially when filings of non-oral solid forms

(injectables, ophthalmic, oral contraceptives, transdermals, etc.) began. Therefore,

although the current exposure to a single facility is high, it should progressively reduce.

Among the large-caps, Cadila gets 38% of its consolidated profits from the Moraiya facility.

Cipla is at the other extreme with only 6% profits from its Goa plant. Over the next three

years, the FDA risk should reduce the most for Cadila and Sun as (1) Cadila launches

transdermals from the new Pharma SEZ, and (2) the Ranbaxy integration and a speciality

acquisition reduce exposure of Halol facility for Sun Pharma. In terms of inspection track-

record, we note that Lupin and Cipla stand out among peers with 60% of their last five

formulation inspections going without 483s vs. 33% for the sector.

FDA risk at mid-caps under-appreciated

Mid-caps have re-rated recently with the expectation of strong growth from the US. The

discount of mid-caps vs. large-caps has reduced from 40% earlier to 20% now. However,

the FDA risk is underappreciated, with 80-100% of US sales contributed by a single facility.

Mid-caps typically supply from 1-2 facilities to the US vs. 4-5 for the large-caps.

FDA risk for mid-caps should not reduce over the next few years as well, as (1) mid-caps

are yet to build scale from the current facility (most of mid-caps have US sales just

<=$100mn or less), and (2) only a few firms have diversified to different forms and have

relatively lower exposure (Strides and Indoco). Additionally, with the FDA now starting

surprise inspections, the risk is higher for mid-caps vs. large-caps.

Prefer Sun, Lupin and Cadila in the sector

We are positive on US generics upside but prefer large-caps over mid-caps: (1) FDA risk is

lower with large-caps, and (2) we prefer stocks with high exposure to complex generics

(refer to Entering the Major League in the US). Sun stays as our top pick as (1) growth

visibility has increased post the Ranbaxy acquisition and the Gleevec settlement, and (2) the

recent US$400 mn deal suggests Sun is already preparing for another acquisition. Lupin has

one of the strongest US pipelines in our coverage and we expect margins to expand with

higher mix of complex generics as oral contraceptives and ophthalmics ramp-up in the next

three years. Lupin is also working on derma, nasals, injectables and controlled substances.

Cadila is the fastest growing in our coverage (expect 28% EPS CAGR over FY14-16) and

it could have a further 15% EPS upside if it wins the litigation on Prevacid solutab. 30% of

Cadila's filings are non-oral-solids with filings in transdermals, nasals, injectables, topicals.

Higher plant concentration

risk = higher FDA risk

Large-caps started

diversifying from their

largest plant in late 2000s

as they filed for complex

generics

Lupin and Cipla stand out

among peers in terms of

inspection track-record

Mid-caps typically supply

from 1-2 facilities to the US

vs. 4-5 for the large-caps

Risk at mid-caps to stay

high for few years as current

scale is low at <$100mn

We are positive on US

generics upside but prefer

large-caps over mid-caps


25 J

un

e 2

014

Ind

ia P

harm

a S

ec

tor

4

Sector valuation

Figure 7: Global valuation table for generic companies

25-Jun-14 Mcap Rating TP Upside /

Sales ($mn) EBITDA margin

(%)

EPS growth

(%)

P/E

(x)

P/B

(x)

RoE

(%)

EV/EBITDA

(x)

($ mn) (Rs) (Down-

side)

(%)

FY14 FY15 FY16 FY14 FY15 FY16 FY14 FY15 FY16 FY14 FY15 FY16 FY14 FY15 FY16 FY14 FY15 FY16 FY14 FY15 FY16

India

Sun 21,619 O 715 14 2,672 3,057 3,552 44 42 42 47 10 16 23.7 21.6 18.6 7.6 5.9 4.7 32 28 26 17.5 15.8 13.3

Lupin 7,485 O 1,025 2 1,836 2,176 2,501 24 24 23 40 14 14 24.3 21.6 18.9 6.7 5.4 4.2 28 25 22 16.0 13.7 12.0

Dr. Reddy's 6,914 O 3,050 24 2,214 2,457 2,776 24 23 23 39 6 16 19.9 18.7 16.1 4.6 3.8 3.2 23 20 20 13.8 12.2 10.6

IPCA 1,729 O 980 18 533 609 757 20 19 19 39 11 22 19.5 17.7 14.5 5.3 4.2 3.4 27 24 23 13.5 12.0 10.3

Glenmark 2,623 O 640 10 993 1,170 1,365 22 22 21 31 14 18 21.0 18.4 15.5 5.4 4.2 3.4 26 23 22 14.2 12.4 10.3

Cipla 5,692 N 415 -3 1,673 1,914 2,178 21 20 21 7 8 20 23.7 22.0 18.4 3.4 3.0 2.6 14 14 14 15.5 15.2 12.8

Cadila 3,416 O 1,100 10 1,549 1,713 1,758 15 17 18 13 27 30 27.1 21.4 16.4 6.0 4.9 4.0 22 23 24 21.2 16.4 12.0

Torrent 1,961 N 500 -28 682 754 868 20 18 18 10 34 12 24.6 18.3 16.4 6.2 5.1 4.2 25 28 26 14.8 14.1 10.8

Source: Company data, IBES, Credit Suisse estimates;

25 June 2014


Plant concentration risk reducing for large-caps About 50-75% of a large cap's US sales come from their largest facility. The reason large-

caps are highly exposed to a single facility is the high gestation period for a facility

supplying to the US. Typically, it takes two years to construct the facility and file ANDAs

from the facility which triggers an FDA inspection. ANDA approval takes on an average

three years. Therefore, a new facility for the US, does not get its first stream of revenue for

the first five years and then takes another 3-5 years for the pay-back period. Most of the

large-caps began operations in the US in early 2000s and therefore started diversifying

into alternate sites only in late 2000s, especially when filings of non-oral solid forms

(injectables, ophthalmic, oral contraceptives, transdermals, etc.) began. Therefore,

although the current exposure to a single facility is high, it should progressively reduce.

We note that most of the large-caps have never received warning letters on their key

facilities (except Cadila receiving a warning letter on its Moraiya facility) but with the FDA

becoming more stringent, that risk cannot be ruled out.

Figure 8: Exposure of the largest facility supplying to the US to consolidated profits

Company FY14A FY17E Reason for exposure change

Cadila 38% 26% Transdermals and oral solids at SEZ resulting in sharp reduction

Glenmark 30% 27% Reduction low as ramp-up at the Indore SEZ or Argentina injectables to take time

Lupin 30% 25% Ophthalmic and oral contraceptive ramping up

Torrent 25% 23% Dahej facility to start in FY17 and should reduce exposure

DRL 25% 20% Copaxone and other injectables should reduce exposure

Sun 25% 19% Contribution coming down due to the Ranbaxy merger

IPCA 8% 9% Key facility shifts from Silvassa to the Indore SEZ

Cipla 6% 8% US sales as a percentage of total sales to ramp-up


Among the large-caps, Cadila gets ~38% of its consolidated profits from the Moraiya

facility. Cipla is at the other extreme with only 6% profits from its Goa plant. The FDA risk

should reduce across most firms as diversification to new forms is mostly from a new

facility. Over the next three years, the FDA risk should reduce the most for Cadila and Sun

as (1) Cadila launches transdermals from its new Pharma SEZ, and (2) the Ranbaxy

integration and a speciality acquisition reduce exposure of Halol facility for Sun Pharma.

Figure 9: How large-caps are diversifying risk to the largest facility supplying to the US

Company # of formulation

facilities for US

Key facility How exposure to largest facility being reduced?

Cadila 5 Moraiya,

Ahmedabad

Reducing exposure to Moraiya through (1) shifting orals from Moraiya to Baddi, (2) new

orals and transdermal filings from SEZ, and (3) a new facility for topical filings Glenmark 4 Goa Reducing exposure to Goa through (1) transfer of derma products to Baddi, (2) new filings

of oral solids from the Indore SEZ, and (3) oncology injectable filings from Argentina

Lupin 4 Goa Goa is only an oral solid plant and as proportion of oral contraceptives, ophthalmic,

injectables and derma increases for Lupin, contribution of Goa facility should reduce

Torrent 1 Indrad, Gujarat Dahej Phase I work is on and should get the US FDA approval in a couple of years

DRL 5 Bachupally,

Hyderabad

Reducing exposure to Bachupally through (1) transfer of some oral products to other

facilities, (2) new filings of oral solids from the Vizag SEZ or Srikakulam SEZ, and (3)

increasing contribution from injectables

Sun 9 Halol, Gujarat Sun's exposure to Halol should reduce due to the Ranbaxy integration (brings in more

non-US revenues) and a possible speciality acquisition in the developed markets

IPCA 2 Indore SEZ Silvassa is a key facility currently but is fully utilised and incremental launches are from

the Indore SEZ. Indore will remain a key facility for IPCA for the next few years where

IPCA is doubling its capacity

Cipla 4 Goa Overall contribution of US is low at 7% of sales. The Indore SEZ was approved in FY13

and therefore, increasingly, sales should diversify for Cipla


Large-caps started

diversifying from their

largest plant in late 2000s

as they filed for complex

generics

25 June 2014


FDA risk at mid-caps is under-appreciated

Mid-caps have re-rated recently on expectations of strong growth from the US. Mid-caps'

discount vs. large-caps has reduced from 40% earlier to 20% now (Figure 11). However,

the FDA risk is underappreciated, with 80-100% of US sales being contributed by a single

facility. The risk should not reduce over the next few years as mid-caps are yet to build

scale from the current facility (most of the mid-caps have US sales of just about US$100

mn or less). Only a few firms are diversified to different forms and have relatively lower

exposure (Strides and Indoco). Additionally, with the FDA now starting surprise

inspections, the risk is higher for mid-caps vs. large-caps.

Figure 10: Facility details of Mid-caps supplying to the US market

# facilities

supplying to US

Details Remarks

IPCA 2 Silvassa, Indore SEZ (main facility) Key ramp-up in the US is dependent on the Indore SEZ

Torrent 1 Indrad, Gujarat Torrent working on the Dahej facility but it will take 2-3

years

Alembic 1 Halol, Gujarat

Ajanta 1 Aurangabad, Maharashtra

Indoco 2 Both in Goa (oral solid and

ophthalmic)

Ophthalmic facility is key for Indoco

Unichem 2 Oral solids - Uttar Pradesh and Goa Goa is a small facility and ramp-up dependent on the

Goa facility

Strides 2 Bangalore (oral solid), Italy (derma) Ramp-up largely dependent on the Bangalore facility

Claris 1 Ahmedabad Injectable facility in Ahmedabad

Source: Company data, Credit Suisse research

Figure 11: Mid-caps re-rating driven by scale-up in the US Figure 12: Mid-caps have 1-2 plants vs. 4-5 at large-caps

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14

Midcap PE discount to large cap pharma

0

1

2

3

4

5

6

7

8

9

10


Mid Caps Large Caps

Large-caps = Sun, Lupin, DRL, Cipla, Cadila and Glenmark; Mid-

caps= Torrent, IPCA, Strides, Alembic, Ajanta and Indoco;

Source: IBES

Source: Company data, Credit Suisse research

Figure 13 shows that mid-caps have significantly high exposure to single facilities and

many have 100% of US sales contributed by single facilities.

25 June 2014


Figure 13: Single facility risk is higher at mid-caps vs. large-caps

0

1

2

3

4

5

6

7

8

9

10

Torrent Alembic Ajanta Claris Indoco Strides Unichem IPCA Cadila Glenmark DRL Lupin Cipla Sun


Mid Caps Large Caps


Figure 15 shows that high exposure to a single facility should sustain for mid-caps for the

next few years as US sales currently are low at about US$100 mn or lower.

Figure 14: US contribution is high for large-caps… Figure 15: …but US sales for mid-caps are currently low

0%

10%

20%

30%

40%

50%

60%

70%

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800 Large Caps

US revenues ($mn) US as % of revenues (RHS)

0%

10%

20%

30%

40%

50%

60%

70%

-

20

40

60

80

100

120

140 Mid Caps

US revenues ($mn) US as % of revenues (RHS)

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

No. of "No 483 inspections": Lupin and Cipla better

placed than others

It's common to receive 483s during FDA inspections. However, we note that Lupin and

Cipla stand out among peers with 60% of their last five formulation inspections going

without 483s. For the sector as a whole, about one-third of inspections went without 483s.

25 June 2014


Figure 16: Lupin and Cipla better placed than peers on "NO 483 inspections"

0%

10%

20%

30%

40%

50%

60%

70%

Lupin Cipla DRL IPCA Torrent Cadila Glenmark Sun

In last 5 formulation inspections In all formulation inspections

% of "NO 483s inspections"

Source: US FDA, Credit Suisse estimates

When is the next inspection due on a key facility

We expect an FDA inspection for all the large-caps in the next six months on their key

facilities with the exception of IPCA (Indore SEZ) and Torrent Pharma.

Figure 17: When is the next inspection due on the largest facility supplying to the US?

Company Date of last inspection of key

facility

Average frequency of last 3

inspections (months)

Due in the next six

months?

Cadila Aug-13 14 Yes

Glenmark Sep-13 15 Yes

Lupin May-13 17 Yes

Torrent Jul-13 25 No

DRL Apr-13 20 Yes

Sun Sep-12 18 Yes

IPCA Apr-13 24 No

Cipla Sep-13 10 Yes


25 June 2014


Sun: Halol is the key facility ■ Key facilities for the US – Halol is the largest facility for Sun and accounts for about

40% of US sales. Halol has capability on oral solids, injectables, and Nasals. Besides

Halol, Taro facilities in Canada and Israel are two key contributors.

■ How exposure to Halol should reduce – Sun's exposure to Halol should reduce due

to the Ranbaxy integration (brings in more non-US revenues) and a possible speciality

acquisition in the developed markets. Sun has been consolidating its plants supplying

to the US – recently, Sun shut down its Caraco (Michigan) facility. We are not aware of

Sun starting any greenfield plant in India to supply to the US.

■ When is the next inspection due? Halol was last inspected in Sep-12 with an

average inspection frequency of 18 months. Therefore, we expect Halol to be

inspected this year. We also expect inspection of Taro's Israel facility and URL's

Philadelphia facility in FY15.

■ Track-record from previous inspections – Among the formulation facilities, Sun has

received warning letter on Caraco, Cranbury and Karkhadi facilities. In terms of

inspections without 483s, only 20% of the last five inspections (formulations) and 30%

of all formulation inspections were without 483s.

Figure 18: Sun’s formulations and API facilities supplying to the US

State

Sun Formulation facilities

Halol Gujarat

Karkhadi Vadodara

Dadra Dadra and Nagar Haveli

API facilities

Ahmednagar Maharashtra

Bharuch (Panoli) Gujarat

Karkhadi Vadodara

Caraco Formulation facilities

Mulberry, Bryan, OH US

Cranbury US

Taro Formulation facilities

Bramptan Canada

Haifa Bay Israel

API facilities

Haifa Bay Israel

URL Formulation facilities

Aurora, Illinois US

Philadelphia US

Source: Company data, Credit Suisse

25 June 2014


Figure 19: Map of Sun’s formulation facilities supplying to the US

API and Formulations

Formulations

Taro - Canada

URL, Illinois

URL, Philadelphia

Caraco, Bryan

Taro - Israel

Sun - Halol

Sun - Dadra

Sun - karkhadi (F+A)


Figure 20: 483 inspection results for Sun's facilities for the US

Period Facility Result

Sun

Nov-13 Karkhadi 483 issued

Mar-07 Karkhadi Clean

May-13 Dadra Clean

Jun-11 Dadra Clean

Apr-08 Dadra Clean

Sep-12 Halol 483 issued

Jun-12 Halol 483 issued

Apr-11 Halol Clean

May-08 Halol 483 issued

Oct-05 Halol 483 issued

May-04 Halol Clean

Caraco

Jan-14 Detroit, MI Clean

May-13 Detroit, MI 483 issued

Jan-13 Detroit, MI 483 issued

Jul-12 Detroit, MI 483 issued

Dec-11 Detroit, MI 483 issued

Sep-11 Detroit, MI Clean

May-09 Detroit, MI 483 issued

Jun-08 Detroit, MI 483 issued

Mar-08 Detroit, MI 483 issued

Jun-13 Mulberry, Bryan, OH 483 issued

Jul-11 Mulberry, Bryan, OH 483 issued

Jul-10 Mulberry, Bryan, OH 483 issued

25 June 2014


Figure 20: 483 inspection results for Sun's facilities for the US (cont'd)


Mar-08 Mulberry, Bryan, OH 483 issued

Apr-07 Mulberry, Bryan, OH 483 issued

Jan-05 Mulberry, Bryan, OH Clean

Dec-01 Mulberry, Bryan, OH 483 issued

Jun-13 Cranbury 483 issued

Nov-11 Cranbury Clean

Jun-11 Cranbury 483 issued

Apr-10 Cranbury 483 issued

Apr-09 Cranbury Clean

May-08 Cranbury Clean

Taro

Feb-14 Brampton, Canada - Formulation 483 issued

Feb-11 Brampton, Canada - Formulation 483 issued

Jul-08 Brampton, Canada - Formulation 483 issued

Jan-05 Brampton, Canada - Formulation Clean

Sep-01 Brampton, Canada - Formulation Clean

Dec-12 Haifa bay, Israel - Formulation + API Clean

May-10 Haifa bay, Israel - Formulation + API 483 issued

Sep-09 Haifa bay, Israel - Formulation + API 483 issued

Mar-06 Haifa bay, Israel - Formulation + API Clean

Oct-02 Haifa bay, Israel - Formulation + API 483 issued

URL

Jan-12 Philadelphia 483 issued

Apr-11 Philadelphia 483 issued

Jun-09 Philadelphia Clean

Dec-08 Philadelphia Clean

Mar-08 Philadelphia Clean

Aug-07 Philadelphia Clean

Nov-06 Philadelphia Clean

Feb-13 Illinois Clean

Aug-11 Illinois Clean

Dec-09 Illinois Clean

Source: FDA Zilla, Company data, Credit Suisse

Figure 21: Timeline of key US facilities and US sales Figure 22: Split of US sales (FY14)

-

500

1,000

1,500

2,000

2,500

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

Sun US sales ($mn)

Caraco - acquired in 1997Caraco - Bryan: Acquired in 2005Halol - 2004

Karkhadi -Acquired in 2004; approved in 2007

Dadra

Taro acquisitionCanada + Israel

URL:Philadelphia

Sun47%

Taro41%

URL9%

Dusa3%

Source: FDA, Company data, Credit Suisse estimates Source: IMS health, Company data, Credit Suisse

25 June 2014


Lupin: Goa is the key facility ■ Key facilities for the US. Goa plant is the key facility and accounts for ~50% of US

sales for Lupin. Majority of non-Cephalosporin oral solids are made at the Goa plant

while the Mandideep facility is for Cephalosporins and Prils. The Indore SEZ has

capability on oral contraceptives, ophthalmic and derma products.

■ Efforts to diversify exposure to Goa plant. Besides oral solids, key areas of future

growth for Lupin are ramp-up of oral contraceptives basket and launch of more

ophthalmic products and, therefore, contribution of Goa plant for Lupin should

gradually reduce.

■ When is the next inspection due? The Goa plant has been inspected at an interval

of 1-2 years in the past with the latest inspection being in May-13. Therefore there is a

good probability of another inspection in the next six months. Mandideep and Indore

SEZ should also get inspected as the last inspection in in Sep-11 and Jun-12,

respectively.

■ Track-record from previous inspections. Post the warning letter at Mandideep in

2009, Lupin's track-record has been clean on FDA inspections. In fact, the last two

inspections at its Goa plant went without any 483s. In terms of inspections without

483s, 60% of the last five inspections (formulations) and 40% of all formulation

inspections were without 483s.

Figure 23: Lupin's formulations and API facilities supplying to the US

States Capability

Formulation facilities

Mandideep Madhya Pradesh Cephalosporins, prils

Verna Goa Non-Cephalosproins oral solids

Chikalthana Maharashtra Oral solids – smaller facility

Indore SEZ Madhya Pradesh Oral contraceptives, ophthalmic, derma and oral solids

API facilities

Mandideep Madhya Pradesh

Tarapur Maharashtra

Dabhasa Gujarat

Indore SEZ Madhya Pradesh



0

200

400

600

800

1,000

1,200

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

Lupin US sales ($mn)

Mandideep- pre 2000

Goa

Indore SEZ

Chikalthana - 2004

Oral contraceptives

11%

Opthalmics5%

Cephs + Prils30%

Orals54%


25 June 2014


Figure 26: 483 inspection results for facilities supplying to the US


May-13 Goa, Formulations Clean

Sep-11 Goa, Formulations Clean

Feb-10 Goa, Formulations 483 issued

Mar-09 Goa, Formulations 483 issued

Jun-05 Goa, Formulations Clean

Jul-12 Chikalthana, Formulations Clean

Nov-09 Chikalthana, Formulations Clean

Jun-12 Indore SEZ, Formulations + API 483 issued

Nov-09 Indore SEZ, Formulations + API 483 issued

Sep-11 Mandideep, Formulations + API 483 issued

Nov-09 Mandideep, Formulations + API 483 issued

Nov-08 Mandideep, Formulations + API 483 issued

May-06 Mandideep, Formulations + API Clean

Mar-03 Mandideep, Formulations + API 483 issued

Feb-00 Mandideep, Formulations + API 483 issued

Jan-13 Dabhasa, API Clean

Jun-12 Tarapur, API Clean

Feb-09 Tarapur, API 483 issued

Feb-05 Tarapur, API Clean


Figure 27: Map of Lupin’s facilities supplying to the US


API

Formulations

Mandideep, MP

Indore SEZ, MP

Verna, Goa

Chikalthana, AurangabadTarapur

Dhabasa, Gujarat


25 June 2014


Cadila: Moraiya is the key facility ■ Key facility for the US. Moraiya is the key facility and accounts for ~75% of US sales

for Cadila. Capability wise the Moraiya facility can manufacture oral solids, Nasal,

Transdermals and Injectables. Moraiya is an integrated unit with API manufacturing.

■ Efforts to diversify exposure to Moraiya. (1) Cadila has shifted some of the oral

solid filings from Moraiya to Baddi, (2) future oral solid and transdermal filings are

being made from the SEZ in Ahmedabad, and (3) for topicals, Cadila has another

facility where filings have already been made for Ointments and an inspection is

awaited. We believe the diversification process should be visible by FY17 for Cadila

(as transdermals and oral solids from the SEZ are launched).

■ When is the next inspection due? The Moraiya plant has been inspected more

frequently than the norm of once in two years. The last inspection was in Aug-2013

and the average inspection time has been 14 months. Therefore, an inspection in the

next six months cannot be ruled out.

■ Track-record from previous inspections. Cadila did get a warning letter for Moraiya

plant in FY12 (for the injectable unit) but the same was resolved within a year. Post

the warning letter resolution, Cadila did get a 483 in the Aug-13 inspection at Moraiya.

In terms of inspections without 483s, 20% of the last five inspections (formulations)

and 30% of all formulation inspections have been without 483s.

Figure 28: Cadila's formulations and API facilities supplying to the US

Plant State Capability

Formulations

Moraiya Ahmedabad Oral solid, nasal, transdermal, injectables

Baddi Himachal Pradesh Oral solid facility where few products were transferred from Moraiya plant

Topical plant Ahmedabad 10 ANDAs for ointments filed and waiting for FDA visit

PharmEZ, SEZ Ahmedabad Oral solid, transdermal (five ANDAs filed), BSV, Hospira

Nesher United States Controlled substance

APIs

Moraiya Ahmedabad

Ankleshwar (Plot 291) Gujarat

Ankleshwar (Plot 294) Gujarat

Dabhasa Gujarat


Figure 29: Timeline of key US plants and US sales Figure 30: Split of US sales (FY14)

-

100

200

300

400

500

600


Cadila US sales ($mn)

Moraiya plant- FY05

Baddi;Nesher acquisition

Orals75%

AG25%


25 June 2014


Figure 31: Map of Cadila's US FDA approved formulation facilities


Formulations

Ahmedabad - 1) Trasad

Road 2) PharmaEZ SEZ

Moraiya, Ahmedabad (F + A)

Baddi, HP


Figure 32: 483 inspection results for Cadila's facilities

Inspection period Facility Inspection result

Aug-13 Moraiya 483 issued

Feb-12 Moraiya 483 issued

Feb-11 Moraiya 483 issued

Feb-09 Moraiya Clean

Apr-07 Moraiya Clean

May-04 Moraiya 483 issued

Mar-13 Dabhasa, API 483 issued

Dec-09 Dabhasa, API 483 issued

May-04 Dabhasa, API Clean

Feb-11 Ankleshwar (Plot 291), API 483 issued

Nov-08 Ankleshwar (Plot 291), API 483 issued

Mar-05 Ankleshwar (Plot 291), API 483 issued

Dec-09 Ankleshwar (Plot 294), API 483 issued

Nov-05 Ankleshwar (Plot 294), API Clean

Nov-00 Ankleshwar (Plot 294), API Clean

Sep-13 Zydus Technologies (Transdermal) 483 issued

Jul-12 Zydus Hospira Clean

Nov-09 Zydus Hospira 483 issued

Source: FDAZilla, Company data, Credit Suisse

25 June 2014


Dr. Reddy's: Bachupally is the key facility ■ Key facilities for the US. Bachupally is the key facility and accounts for ~60% of US

sales. Bachupally is mainly an oral solid facility. Injectables for Dr. Reddy's are made

at the Vizag SEZ or are sourced externally. In the US, the Shreveport facility services

Veteran contracts and the Bristol facility which supplies Amoxicillin/Clavunic and

Amoxil was bought from GSK.

■ Efforts to diversify exposure to Bachupally facility. Dr. Reddy's is reducing its

exposure to Bachupally through (1) transfer of some oral products to other facilities,

(2) new filings of oral solids from the Vizag SEZ or Srikakulam SEZ, and (3) increasing

contribution from injectables. The Vizag SEZ has already been commercialised while

the Srikakulam SEZ is yet to be commercialised.

■ When is the next inspection due? Bachupally has been inspected with a frequency

of two years and the last inspection was in Apr-13 (without any 483s). Therefore, the

next inspection could be in the next six months. The Vizag SEZ was last inspected in

Jan-2013 and is due for inspection this year.

■ Track-record from previous inspections. Dr. Reddy's has a clean track-record on

its formulation facilities (received an import alert on its Mexico API plant though). In

terms of inspections without 483s, 40% of the last five inspections (formulations) and

45% of all formulation inspections were without 483s.

Figure 33: Dr. Reddy’s formulations and API facilities supplying to the US

State Capability


Bachupally (Hyderabad) Andhra Pradesh Oral solid

Vizag SEZ Andhra Pradesh Injectables+ Oral solids

Srikakulam SEZ Andhra Pradesh Oral solids

Shreveport (Veteran contract) USA Oral solids

Bristol (acquired from GSK) USA Oral solids

API facilities

Srikakulam SEZ Andhra Pradesh

Srikakulam Andhra Pradesh

Nalgonda Andhra Pradesh

Hyderabad 1 (Plot 137/138) Andhra Pradesh

Hyderabad 2 (Plot 110 &111) Andhra Pradesh

Hyderabad 3 (Plot 116) Andhra Pradesh

Hyderabad 4 (Plot 9A) Andhra Pradesh

Cuernavaca Mexico

Mirfield UK

Middleburgh USA


25 June 2014



0

200

400

600

800

1,000

1,200


DRL US sales ($ mn)

Bachupally - pre 2000

Vizag SEZ

Srikakulam SEZ

Injectibles29%

Oral solids -India58%

Bristol6%

Shevreport7%


Figure 36: Map of Dr. Reddy’s formulation facilities supplying to the US


Formulations

Srikakulam

Shreveport

Bachupally (Hyderabad)Vizag

Hyderabad, API

Bristol

API


25 June 2014


Figure 37: 483 inspection results for Dr. Reddy's facilities for the US


Sep-13 Shreveport 483 issued

Sep-12 Shreveport 483 issued

Feb-12 Shreveport 483 issued

Oct-10 Shreveport Clean

Mar-10 Shreveport Clean

Nov-07 Shreveport Clean

Mar-07 Shreveport Clean

Dec-06 Shreveport 483 issued

Jun-05 Shreveport Clean

Apr-13 Bachupally Clean

Nov-11 Bachupally 483 issued

Nov-09 Bachupally 483 issued

Mar-07 Bachupally 483 issued

Mar-02 Bachupally 483 issued

Feb-00 Bachupally 483 issued

May-12 Nalgonda, API 483 issued

Feb-09 Nalgonda, API 483 issued

Mar-05 Nalgonda, API Clean

Nov-00 Nalgonda, API 483 issued

Oct-12 Middleburgh Clean

Oct-12 Bristol Clean

Mar-11 Bristol Clean

Nov-07 Bristol Clean

Jan-13 Vizag SEZ, Formulations Clean

Nov-09 Vizag SEZ, Formulations Clean

Feb-08 Vizag SEZ, Formulations 483 issued

Jun-12 Hyderabad 1 (Plot 137/138), API 483 issued

Feb-09 Hyderabad 1 (Plot 137/138), API 483 issued

Nov-05 Hyderabad 1 (Plot 137/138), API Clean

Feb-02 Hyderabad 1 (Plot 137/138), API Clean

Sep-10 Hyderabad 3 (Plot 116), API 483 issued

Mar-07 Hyderabad 3 (Plot 116), API 483 issued

Mar-03 Hyderabad 3 (Plot 116), API Clean

Feb-00 Hyderabad 3 (Plot 116), API 483 issued

Sep-11 Srikakulam, API Clean

Apr-08 Srikakulam, API Clean

May-04 Srikakulam, API Clean

Feb-00 Srikakulam, API 483 issued

Apr-12 Hyderabad 4 (Plot 9A), API 483 issued

Mar-07 Hyderabad 4 (Plot 9A), API Clean


25 June 2014


Cipla: Goa is the key facility ■ Key facilities for the US. Goa is the largest facility for Cipla with capability across oral

solids, injectables, aerosols, creams and liquids. Other two operational facilities are

oral solids facilities at Kurkumbh and Patalganga, with the former being the larger of

the two. Cipla has also received US approval for the Indore SEZ which has capability

across aerosols, liquids, injectables, nasals, and ophthalmics.

■ Efforts to reduce exposure to the largest plant. The Indore SEZ was approved in

FY13 (Nov 2012) by the US FDA and therefore dependency on Goa should reduce.

Moreover, the tax rate on the Indore SEZ is lower (equal to MAT).

■ When is the next inspection due? Both Kurkumbh and Patalganga are due for

inspection this year. The Goa plant was last inspected in Sep-13 (no 483s) but the

average inspection frequency has been once a year and therefore the Goa plant could

be inspected in FY15. The Indore SEZ could be inspected in FY15 as the last

inspection was in Mar-13.

■ Track-record from previous inspections. Cipla has a clean track-record of no

warning letter so far. In terms of inspections without 483s, 60% of the last five

inspections (formulations) and 30% of all formulation inspections have been without

483s.

Figure 38: Cipla's formulations and API facilities supplying to the US

State Capability


Kurkumbh Maharashtra Oral solid

Verna Goa Aerosols, injections, creams, liquids, oral solid

Patalganga Maharashtra Tablets + Aerosol

Indore SEZ Madhya Pradesh Aerosols, liquids, injectables, nasals, Ophthalmic

API facilities

Kurkumbh Maharashtra

Bangalore (Virgonagar) Karnataka

Patalganga Maharashtra

Bangalore (Bommasandra) Karnataka


Figure 39: Timeline of key US facilities Figure 40: Split of overall sales (FY14)

Pre-FY'04

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13

Goa Indore SEZ

Kurkumbh and Patalganga -older facilities

Cipla Facilities - US FDA approval timeline

India40%

US7%

EU6%

Africa25%

ROW14%

API8%


25 June 2014


Figure 41: Map of Cipla's US FDA approved formulation facilities


Formulations

Kurkumbh, Maharashtra

Verna, Goa

Patalganga, Maharashtra

Indore SEZ, MP


Figure 42: 483 inspection results for Cipla’s facilities supplying to the US


Sep-13 Goa , Formulations Clean

May-13 Goa , Formulations 483 issued

Nov-11 Goa , Formulations 483 issued

Feb-11 Goa , Formulations 483 issued

Apr-09 Goa , Formulations 483 issued

Apr-06 Goa , Formulations Clean

May-04 Goa , Formulations 483 issued

Mar-13 Indore SEZ, Formulations 483 issued

Nov-12 Indore SEZ, Formulations Clean

Jun-12 Patalganga, Formulations + API Clean

Feb-09 Patalganga, Formulations + API 483 issued

Jun-04 Patalganga, Formulations + API Clean

Sep-01 Patalganga, Formulations + API 483 issued

Dec-11 Kurkumbh, Formulations + API 483 issued

Mar-09 Kurkumbh, Formulations + API 483 issued

Jun-07 Kurkumbh, Formulations + API 483 issued

Apr-06 Kurkumbh, Formulations + API Clean

Nov-02 Kurkumbh, Formulations + API 483 issued

Aug-00 Kurkumbh, Formulations + API 483 issued

Jun-12 Bangalore, API (Virgonagar) 483 issued

Apr-09 Bangalore, API (Virgonagar) 483 issued

Oct-05 Bangalore, API (Virgonagar) 483 issued

Nov-02 Bangalore, API (Virgonagar) Clean

Aug-00 Bangalore, API (Virgonagar) 483 issued

Nov-11 Bangalore, API Clean


25 June 2014


Glenmark: Goa is the key facility ■ Key facilities supplying to the US. Goa is the key facility and accounts for ~80% of

US sales for Glenmark (adjusted for supplies such as controlled substance, etc., from

third parties). The Goa facility has different units for hormones, dermatology and oral

solids. If we leave out the hormone unit, then sales contributed from the Goa plant

should be ~65% of US sales. Ankleshwar is the main API facility for the US and

Glenmark is also developing a new site at Dahej for US APIs. The Shendra API facility

is dedicated for Crofemeler supply.

■ Efforts to diversify exposure to Goa. Glenmark has been reducing exposure to the

Goa facility by (1) site transfer of some derma products to the Baddi facility, (2) new

filings from Indore SEZ for oral solids (and complex injectables and immuno

suppresants are also from Indore SEZ), and (3) oncology injectable filings are from the

Argentina facility. Therefore, although the exposure to Goa facility is high at present, it

should progressively reduce as contribution from Indore and Argentina facilities

increases (expected from FY16-FY17 onwards). The Indore plant has already

undergone its first inspection in Oct-13 and was subsequently cleared.

■ When is the next inspection due? The Goa plant has been inspected more

frequently for Glenmark than the norm of once in two years. The last inspection was in

Sep-2013 and the average inspection time has been 15 months. Therefore, an

inspection in the next six months cannot be ruled out for the Goa plant.

■ Track-record from previous inspections. Glenmark maintains a clean track-record

on FDA inspections with no warning letter so far. However, only 20% of the last five

and 30% of all formulation inspections have been without 483s.

Figure 43: Glenmark's formulations and API facilities supplying to the US

State Capability

Formulation plant

Goa Goa Hormones, Dermatology and Oral solids

Indore Madhya Pradesh Oral solid, Complex Injectables and Immuno Suppressants

Baddi Himachal Pradesh Dermatology

Buenos Aires Argentina Injectables

API facilities

Ankleshwar Gujarat Oral solids

Dahej Gujarat Work in Progress

Shendra Maharashtra Crofemeler API

Source: US FDA, Credit Suisse

Figure 44: Timeline of key US plants and US sales Figure 45: Split of US sales (FY14)

-

50

100

150

200

250

300

350

400

450

500


Glenmark US sales ($mn)

Goa plant - 2005

Baddi started

Indore SEZ

Oral Contraceptives

12%

Derma20%

Orals68%


25 June 2014


Figure 46: Map of Glenmark's US FDA approved formulation facilities


Formulations

Goa

Baddi, HP

Indore

Buenos Aires, Argentina


Figure 47: 483 inspection results for Glenmark's facilities

Inspection Period Facility Inspection Result

Sep-13 Goa formulations 483 issued

Jul-13 Goa formulations 483 issued

Oct-11 Goa formulations 483 issued

Nov-09 Goa formulations 483 issued

May-08 Goa formulations 483 issued

Jun-05 Goa formulations Clean

Oct-13 Indore SEZ formulations 483 issued

Aug-12 Baddi formulations Clean

Nov-09 Baddi formulations 483 issued

Sep-07 Baddi formulations Clean

Oct-11 Ankleshwar, API 483 issued

May-08 Ankleshwar, API 483 issued

May-04 Ankleshwar, API 483 issued

Source: FDA Zilla, Credit Suisse

25 June 2014


Torrent: Only one facility for US ■ Key facilities supplying to the US. Torrent currently has one integrated plant in

Gujarat supplying to the US. The capability is mainly on oral solids.

■ How are sales diversifying for future pipeline. Torrent has been investing in Dahej

SEZ where the Phase I is expected to get completed this year. Torrent has started

manufacturing exhibit batches to trigger regulatory approval for the European market.

However, US approval for the plant should at least take couple of more years.

Therefore, the Indrad plant should remain the key plant for the next three years.

■ When is the next inspection due? Torrent's Indrad facility has been inspected once

every two years and the last inspection was in Jul-13. Therefore, we do not expect an

inspection in FY15.

■ Track-record from previous inspections. Torrent has maintained a clean track-

record so far, but in the last four inspections, it was only once that Torrent cleared the

inspection without any 483.

Figure 48: Torrent's facilities supplying to the US

Formulation facilities State Capability

Indrad Gujarat Oral solid

API facilities

Indrad Gujarat Oral solid


Figure 49: Torrent's Gujarat plant getting inspected once every two years


Jul-13 Indrad, Gujarat 483 issued

Mar-11 Indrad, Gujarat Clean

Apr-08 Indrad, Gujarat 483 issued

Apr-06 Indrad, Gujarat 483 issued


Figure 50: Map of Torrent’s facilities supplying to the US


Formulations

Indrad, Gujarat


25 June 2014


IPCA Labs: Indore is the key facility ■ Key facilities for the US. IPCA has been supplying to the US through the Silvassa

facility until now. However, it has already achieved 100% utilisation at the facility and

has been transferring products to the Indore SEZ which got approval from the FDA in

Sep-2013.

■ How are sales diversifying for the future pipeline? All of the incremental US sales

for IPCA will come from the Indore SEZ and in fact IPCA has already started

expanding the Indore facility to double its production capacity which is expected to get

completed in the next two years.

■ When is the next inspection due? Both Ratlam (API unit) and Silvassa units are due

for inspection this year while inspection of Indore SEZ is not expected in the near

term.

■ Track-record from previous inspections. IPCA has maintained a clean track-record

so far although the Indore SEZ approval took longer than expected. In terms of

inspections without 483s, 40% of formulation inspections were without 483s.

Figure 51: IPCA's facilities supplying to the US

States Capability

Formulations

Silvasa Dadra & Nagar Haveli Oral solids

Indore SEZ Madhya Pradesh Oral solids

API Facilities

Waluj, Aurangabad Maharashtra Oral solids

Ratlam Madhya Pradesh Oral solids


Figure 52: 483 inspection results for IPCA's facilities for the US

Period Facility Inspection Result

Jul-12 Silvassa 483 issued

May-10 Silvassa 483 issued

Apr-08 Silvassa Clean

Apr-13 Indore SEZ 483 issued

Jan-12 Indore SEZ Clean

Sep-11 Ratlam 483 issued

Apr-08 Ratlam Clean

May-04 Ratlam Clean

Mar-00 Ratlam Clean


25 June 2014


Companies Mentioned (Price as of 25-Jun-2014)

Ajanta Pharma (AJPH.BO, Rs1438.9) Alembic Pharma (ALEM.BO, Rs277.55) Cadila Healthcare (CADI.BO, Rs1002.3, OUTPERFORM, TP Rs1100.0) Cipla Limited (CIPL.BO, Rs426.35, NEUTRAL, TP Rs415.0) Claris Life (CLAI.BO, Rs146.3) Dr. Reddy's Laboratories Limited (REDY.BO, Rs2460.85, OUTPERFORM, TP Rs3050.0) Glenmark Pharmaceuticals (GLEN.BO, Rs584.35, OUTPERFORM, TP Rs640.0) IPCA Laboratories Limited (IPCA.BO, Rs828.0, OUTPERFORM, TP Rs980.0) Indoco Remedies (INRM.NS, Rs167.1) Lupin Ltd (LUPN.BO, Rs1009.45, OUTPERFORM, TP Rs1025.0) Strides Arco (STAR.BO, Rs603.85) Sun Pharmaceuticals Industries Limited (SUN.BO, Rs627.6, OUTPERFORM, TP Rs715.0) Taro Pharmaceutical Industries Ltd (TARO.N, $112.14, OUTPERFORM, TP $85.0) Torrent Pharma (TORP.BO, Rs694.0, NEUTRAL, TP Rs500.0) Unichem (UNLB.NS, Rs206.4)

Disclosure Appendix

Important Global Disclosures

I, Anubhav Aggarwal, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for Cadila Healthcare (CADI.BO)

CADI.BO Closing Price Target Price

Date (Rs) (Rs) Rating

17-Jul-12 844.05 970.00 O *

18-Jul-12 877.70 *

06-Aug-12 907.50 970.00 O

07-Nov-12 854.00 955.00

12-Dec-12 842.00 1000.00

10-Feb-13 791.35 800.00 N

05-Sep-13 641.50 760.00 O

07-Feb-14 904.00 1075.00

19-May-14 899.00 1100.00

* Asterisk signifies initiation or assumption of coverage.

O U T PERFO RM

N EU T RA L

3-Year Price and Rating History for Cipla Limited (CIPL.BO)

CIPL.BO Closing Price Target Price


08-Aug-11 303.50 355.00 O

19-Oct-11 289.15 330.00

09-Jan-12 344.20 360.00

31-Jul-12 338.55 390.00

12-Dec-12 415.40 475.00

29-May-13 401.55 415.00 N


O U T PERFO RM

N EU T RA L

25 June 2014


3-Year Price and Rating History for Dr. Reddy's Laboratories Limited (REDY.BO)

REDY.BO Closing Price Target Price


21-Jul-11 1543.00 1750.00 O

19-Oct-11 1516.55 1670.00

07-Feb-12 1634.25 1670.00 N

19-Jul-12 1655.60 1640.00

30-Sep-12 1647.40 1810.00

30-Oct-12 1723.00 1900.00

12-Dec-12 1874.20 2150.00 O

29-Mar-13 1766.30 2180.00

30-Jul-13 2179.40 2420.00

01-Nov-13 2470.65 2850.00

11-Feb-14 2658.95 3150.00

13-May-14 2610.70 3050.00


O U T PERFO RM

N EU T RA L

3-Year Price and Rating History for Glenmark Pharmaceuticals (GLEN.BO)

GLEN.BO Closing Price Target Price


19-Oct-11 285.60 340.00 O

09-Jan-12 295.00 350.00

19-Apr-12 321.90 375.00

08-Jul-12 377.05 430.00

12-Dec-12 449.00 545.00

08-Jul-13 577.50 680.00

01-Nov-13 539.30 640.00


O U T PERFO RM

3-Year Price and Rating History for IPCA Laboratories Limited (IPCA.BO)

IPCA.BO Closing Price Target Price


21-Feb-14 888.00 1030.00 O *

02-Jun-14 788.25 980.00


O U T PERFO RM

25 June 2014


3-Year Price and Rating History for Lupin Ltd (LUPN.BO)

LUPN.BO Closing Price Target Price


29-Jul-11 454.60 500.00 O

20-Oct-11 469.40 530.00

24-Jan-12 445.55 510.00

15-Mar-12 504.35 580.00

13-Sep-12 599.20 640.00

23-Oct-12 562.70 615.00

12-Dec-12 606.65 710.00

20-May-13 768.05 755.00 N

08-Aug-13 801.15 830.00

31-Oct-13 887.15 950.00

10-Dec-13 872.45 1025.00 O


O U T PERFO RM

N EU T RA L

3-Year Price and Rating History for Sun Pharmaceuticals Industries Limited (SUN.BO)

SUN.BO Closing Price Target Price


19-Oct-11 241.00 267.50 O

21-Nov-11 249.18 288.00

04-Jan-12 250.68 297.50

29-Mar-12 285.40 312.50

31-May-12 283.75 325.00

12-Aug-12 337.80 370.00

13-Sep-12 338.42 387.50

12-Dec-12 362.35 410.00

05-Feb-13 373.65 420.00

21-Feb-13 397.85 450.00

28-May-13 497.78 560.00

12-Jun-13 490.50 545.00

09-Aug-13 507.10 585.00

10-Dec-13 587.25 685.00

14-Feb-14 608.95 715.00


O U T PERFO RM

3-Year Price and Rating History for Taro Pharmaceutical Industries Ltd (TARO.N)

TARO.N Closing Price Target Price

Date (US$) (US$) Rating

25-Sep-13 69.66 85.00 O *


O U T PERFO RM

25 June 2014


3-Year Price and Rating History for Torrent Pharma (TORP.BO)

TORP.BO Closing Price Target Price


28-Jun-12 297.50 372.50 O

29-Jun-12 300.08 *

12-Sep-12 351.55 372.50 O

12-Dec-12 333.25 407.50

31-May-13 393.38 407.50 N

21-Jan-14 479.95 500.00


O U T PERFO RM

N EU T RA L

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Underperform/Sell* 13% (46% banking clients)

Restricted 3%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

25 June 2014


Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.

Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and analytics/disclaimer/managing_conflicts_disclaimer.html

Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Price Target: (12 months) for Cadila Healthcare (CADI.BO)

Method: Our target price of Rs 1100 for Cadila Healthcare is based on 18x financial year 2016 core earnings forecasts. Our target multiple of 18x for Cadila is at 10% discount to the large cap peers (in line with the historical trend).

Risk: Risks that could impede achievement of our target price of Rs 1100 for Cadila Healthcare include: (1) sustenance of cash flows from Divalproex ER; (2) Delay in approval of low competition products: Our estimates assume Cadila getting clearance of low competition products in oral solids in 2nd half of Financial year 2015 and Nasal spray and Injectable products in FY15. However, delay in Consent Decree procedures at Nesher or approval delays impacts our estimates adversely. (3) Delay in recovery of India growth post pricing policy.

Price Target: (12 months) for Cipla Limited (CIPL.BO)

Method: Our target price of Rs415 for Cipla Limited is based on 18x FY16E EPS (earnings per share). We value Cipla at 10% discount to our sector average multiple of 20x due to the current phase of change at Cipla.

Risk: In our view, there are three key risks to our Rs415 target price for Cipla. 1) Since CY03, Cipla has been involved in a lawsuit with the National Pharmaceutical Pricing Authority in India. If Cipla loses the lawsuit (the company believes it is likely to win), there could be downside on earnings. 2) slow ramp up in exports from Indore SEZ 3) delay in inhalers launch in Europe

Price Target: (12 months) for Glenmark Pharmaceuticals (GLEN.BO)

Method: Our target price of Rs640 for Glenmark Pharmaceuticals is based on 11x EV/EBITDA FY16. Our target multiple is at 10% discount to industry average due to higher leverage at Glenmark.

Risk: Downside risks to our Rs640 target price for Glenmark pharmaceuticals include the following: (1) delays in FDA approvals which impacts growth for US generic business (2) Glenmark's domestic market growth slowing down - till now it has been growing above the industry average and our target price assumes that trend continues. (3) Glenmark has high financial leverage and its foreign currency loan is priced on LIBOR and therefore if interest rates pick up in the US, our estimates have downside.

Price Target: (12 months) for Lupin Ltd (LUPN.BO)

Method: Our Rs1,025 target price for Lupin is arrived at by applying 20x price to earnings multiple to Lupin's profits for CY2015. The price to earnings multiple used for Lupin is in line with the sector average multiple.

Risk: Downside risks to our Rs1,025 target price for Lupin include: (1) slowdown in domestic sales growth; (2) slowdown in new product approvals in the United States (3) a sharp decline in Suprax sales due to increasing competition; (4) higher than expected competiton and oral contraceptives leading to faster price erosion.

Price Target: (12 months) for Dr. Reddy's Laboratories Limited (REDY.BO)

Method: Our target price for Dr. Reddy's is Rs3,050. This is based on a price-to-earnings multiple of 20x on FY2016E EPS . We value Dr. Reddy's in-line with peers.

Risk: Risks that could impede achievement of our Rs3,050 target price for Dr Reddy's include the following: Downside risks: 1) higher than expected price erosion in key US products like Vidaza, Dacogen; 2) intensifying competition in India; 3) Adverse result from US FDA inspection 4) Delay in copaxone

Price Target: (12 months) for Sun Pharmaceuticals Industries Limited (SUN.BO)

Method: Our target price for Sun Pharmaceuticals Industries Limited is Rs715. This is based at 21x our earnings estimate for FY2016, at a 5% premium to the sector average, due to superior returns and a strong balance sheet of Sun Pharma. Sun Pharma has traded at a premium of 10-15% to large cap pharma peers over the last five years.

Risk: Downside risks to our Rs715 target price for Sun Pharmaceuticals include the following: (1) Price increase taken at Taro not sustaining; (2) competition becoming more intense in the chronic segment in India; and (3) expensive acquisition with the use of cash.

25 June 2014


Price Target: (12 months) for Taro Pharmaceutical Industries Ltd (TARO.N)

Method: Our target price of USD85 is based on DCF methodology assuming 10% WACC, 5% sales CAGR for the next 4 years and 1% terminal growth. Our target price implies one year EV/EBITDA multiple of 9x

Risk: Risks to our target price of USD 85 are 1) Price erosion on top 7 products. In our view, top 7 products for Taro account for 50% of its gross profit. Our target price assumes that follow on competition impacts market share but does not result in significant price erosion as the competition in these products will remain limited. However, if competition increases to more than five players in dermatology products, our estimates have downside. 2) Delay in new approvals. Our estimates assume market share loss on existing products to be offset by sales from new launches. Timing mismatch between the two is a risk to our estimate 3) Approvals/ sales impacted by FDA action. Taro currently supplies to the US market through two facilities loacted in Israel and Canada. If any of the two facilities deviate from GMP requirements, supply or new approvals could be impacted.

Price Target: (12 months) for Torrent Pharma (TORP.BO)

Method: Our target price of Rs 500 for Torrent Pharma is based on 13x financial year 2016 earnings forecast (at a 35% discount to sector average which is in line with historical discount for Torrent) less EPS (earnings per share) dilution of 4% from Elder acquisition.

Risk: Risk to our target price of Rs 500 for Torrent Pharma include: (1) New pharma pricing policy in India - 30% of Torrent's India sales are exposed to pharma pricing policy (2) risk of Brazil shifting from branded generic market to generic-generic market - however doctors are still the key decision makers and can forbid substitution of branded medicines by generic-generic medicines 3) ramp-up delays for contract manufacturing partnership with Astrazeneca and other MNCs.

Price Target: (12 months) for IPCA Laboratories Limited (IPCA.BO)

Method: Our Rs980 target price for IPCA is arrived at by applying 17x price to earnings multiple to IPCA's forecasted profits for FY2016. The price to earnings multiple used for IPCA is at a 15% discount to the sector multiple, given the company's lower scale and higher proportion of APIs.

Risk: Downside risks to our Rs980 target price for IPCA include: (1) slowdown in domestic sales growth; (2) increasing competition in Institutional business in Africa; (3) Partnership model not yielding desired results in US. In addition antimalarial sales are susceptible to seasonal variations.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (CIPL.BO, LUPN.BO, SUN.BO) within the next 3 months.

As of the date of this report, Credit Suisse makes a market in the following subject companies (TARO.N).

Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.

The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (CADI.BO, CIPL.BO, GLEN.BO, LUPN.BO, REDY.BO, SUN.BO, TARO.N, TORP.BO, IPCA.BO) within the past 12 months

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To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Credit Suisse Securities (India) Private Limited ................................................................................................ Anubhav Aggarwal ; Chunky Shah

25 June 2014


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25 June 2014


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